Case study by Colonial First State Global Asset Management

Colonial First State Global Asset Management (known as First State Investments outside of Australia and New Zealand), is a global asset management business with experience across a wide range of asset classes and specialist industry sectors, including direct infrastructure investments (also known as CFSGAM Infrastructure). As one of Australia’s first direct infrastructure investment managers, we have a long track record of implementing ESG considerations into our investment strategies, particularly as they relate to risk mitigation and value creation.

Key findings

  • ESG considerations are particularly relevant to infrastructure investments because of the longterm investment horizon and the significant nature of the asset.
  • An asset manager who sits on an asset company board needs to have the necessary ESG skills to protect and enhance the value of the asset.
  • ESG training of infrastructure investment teams is not something that can be bought off the shelf.
  • Understanding ESG issues can help protect investment returns, add value to operational governance and identify investment opportunities.

Our infrastructure investment team has consistently developed and refined its commitment to ESG and over time it has become a fundamental part of the investment process. However, one of the biggest challenges with mainstreaming ESG considerations is ensuring our investment teams have the necessary expertise to ensure all the relevant ESG issues are considered. To ensure that our infrastructure investment team was equipped to fully consider ESG risks and opportunities, we appointed Environmental Resources Management (ERM), one of the world’s largest environmental services firms, to specifically develop a unique course which focuses on the ESG issues currently facing the infrastructure sector.

Mainstreaming ESG considerations

The course was commissioned because we view responsible investment as an important, mainstream issue that is worthy of detailed consideration by our infrastructure investment team. In order to best protect and enhance returns, we need to fully understand and manage the potential risks and opportunities. For our infrastructure investors, this is about intra-asset management of ESG issues together with whole-of-portfolio and investment strategy considerations.

Due to the size and nature of infrastructure assets, they are typically exposed to high levels of ESG risk and opportunity. Training in ESG considerations provides the skill and knowledge so that material ESG issues can be factored into investment decision making.

For CFSGAM Infrastructure, responsible investment means committing to consider ESG issues when determining the right price to pay for an asset, when managing the investment, during the ongoing valuation of asset, and in undertaking the investment strategy. Our training in ESG issues is done purely to protect and enhance investment returns.

“ESG factors impact upon unlisted infrastructure value creation and investment risk management and therefore are an important consideration in our investment and asset management activities. Consideration of ESG is mainstream and the training course was developed as part of our efforts to continuously enhance our investment skills, processes and performance.”

Perry Clausen (Head of Infrastructure) Colonial First State Global Asset Management

Course structure

Our asset managers, or their representatives, typically sit on the boards of the infrastructure businesses in which we invest, so it is vital that they understand the most pertinent ESG issues in order to protect and enhance asset performance. In demonstrating our serious approach to ESG considerations, a significant investment was made to develop a course that helped to ensure that a high level of knowledge and understanding was achieved for every member of our infrastructure investment team.

The training sought to build awareness of the ESG risks and opportunities in the asset management cycle. While the training focused on risk identification and mitigation, it also touched on value creation opportunities.

The course identified ESG issues and concepts through the use of a hypothetical case study. Participants were provided information on the case study and asked to discuss how they would respond to various ESG opportunities and risks. Responses were discussed and shared with the group, who were then presented with the best practice responses.

The course focused on the environmental and social standards, as included in our Infrastructure ESG Policy, including:

  • the Equator Principles;
  • the International Finance Corporation (IFC) Performance Standards;
  • the Global Reporting Initiative.

The infrastructure investment team were able to take learnings from the training to refine their approach to measuring and managing ESG issues in all aspects of the investment process. While ESG issues had always been considered by the infrastructure team, the training allowed for continuous improvement in the team’s approach and updated them on new and emerging ESG issues and trends. The types of reporting our asset managers are now better equipped to review include: water and energy use; greenhouse emissions; environmental fines or breaches, staff turnover and engagement; injuries and safety reporting; community impacts from noise or pollution; levels of unionisation and relationships with trade unions; customer satisfaction and relationships with regulators.